LT Update - Voila !

On Aug 23, i wrote that we would head into a major 9 month cycle bottom and we did. On Sep 15, i posted that we should end the climactic phase in about 1-2 days. In my Sep 17 post i said that Sentiment was ripe for a major bottom and the pattern,price and time was ripe. Now one could blame the bottom on the Fed/Treas intervention etc. Yes, but that's not technical analysis. Hasn't the Fed treasury been intervening constantly over the last few weeks. Why did the market choose to bottom on a particular day ? Well, if one is a technical analyst, it would have been hard to miss this bottom. 2 days prior to the bottom we had nasty breadth plurality, with decliners exceeding 3000+ on the NYSE. During Thursday morning trade, the advancers were running around 2000, while the market started to plunge. Decliners never went above 2000 during the selloff. Not to mention the capitulation volume over the last few days. Tell tale signs of an approaching bottom. Of course, the advance out of the bottom got exaggerated with the annoucement of the short selling ban. But point is, if you are TA guy, you would have been prepared for this assault. That's what i had been preparing for, with my posts over the last few days on this blog. Many are calling this as a ST bottom. But i disagree and i am going out on a limb and calling this a major IT bottom. A multi-month rally lasting 6-8 months should begin from here.


My LT projection for SPX was 1170+/- 20 points and we acheived that this week. The market progressed pretty much in the way the pattern was projected. An a-b-c-x-a-b-c.

Prior LT projection


Given that this was the largest, fastest 1-week rally since the bear market begun in Oct 2007, the post market action out of the bottom loudly says that the first leg of the bear market is likely over !.



Now to the fun part on the projections. Assuming wave A is over, Wave B typically retrace 50-78.1% of the wave A rally. Given the fast nature of the rally out of the bottom, and relative to where the price now is w.r.t to the weekly Oscillator, there's ways to go before the weekly charts get overbought. So it's unlikely that the 50% retrace will mark the end of the wave B rally. Timewise it took almost 12 months for the wave A rally. So the wave B rally should last at least for 6-8 months. Given the time requirement and the room on the weekly momentum charts, i would say the target for this Wave B rally should be at least the 61.8% retrace, which comes around 1407. That's my prelimnary projection P1. If we exceed and hold above that, we could tag the P2 target (1470), which is quite remote, but nevertheless possible.

The necessary divergence on the NYSE MCO is in place. The necessary momentum divergences on the weekly charts are in place. I dont' see a case for a retest. I only pray that the bears don't get caught in another gap-up over the weekend. A lot of psychological damage has been made on the bears in the last 2 days. The outrage over the govt intervention and disbeleif in the rally, will ensure that the bus will never get loaded on this upleg. Keep an open mind and trade well ! Good luck.

Sentiment

Sentiment here is appropriate for a major bottom (no i am not talking about a ST bottom). What a contrast ? It was just 8 months ago when the chinese housewives were buying the Shanghai with both their hands and the Indian housewives went nuts, all plunging into the Reliance IPO when BSE was at 21000.

When S&P cracked 1380 back in January, i posted the LT sell on the S&P with a target of 1170+/-20. There were no talks about the implications of the U.S market breakdown. It was all about how the emerging markets were immune from the U.S developments. BSE was at 20,000+ and SSEC was somewhere around 5500 then. Now that the BSE is close to it's LT objective of 12300 and Shanghai now below 2000, stories about the death of U.S is appearing on the front pages of the asian newspapers, written by journalists who think AIG is an index and S&P a stock ! And mind you, the stories are appearing even on the asain regional newspaper frontpages !

Time to get bearish was 2 weeks back when the trend turned. At the tops and the middle of the trend, there are plenty of trendlines, forks, bollinger bands, fibonanci, pivots, etc to provide support and a slope to slip down on. When all supports are broken and there's nothing to hang on, then the raw fear takes over, like now. The crash topics take center stage. Newsletter writers warn their subscribers of the dangerous volatility and ask them to stay in cash (and you need to pay these newsletters folks to learn to stay in cash. Amazing !). Folks, it's nothing new here. I bet every major IT bottom has felt that way. Most typical of a 9 month cycle bottom.

Now this is neither an advise to bottom pick nor a passage about my knife-catching abilities. Just a sentiment read. I don't trade these bottoms. I am just not interested. I just scalp the volatility, beacuse unless one has the ability to take 50-100 SPX points drawdowns calmly, they have no business trying to establish positions here.

Time, Pattern and Price are ripe here for the completion of the first leg of the bear market. Now let the market speak....

9 month cycle update

Since my Aug 23 update, the market has been severely pressured by the 9 month cycle. Given that the cycle is on track, i would expect the lows to come sometime the end of September. Negative breadth climaxed on today's selloff and the volume rose as we broke SPX 1200. We are entering into the selling climax phase of this decline, which should last a couple of days, which means some nasty volatility and wide range bar days. I still expect the market to bottom in my LT bottom projection area of SPX 1170+/- 20 points. If the market puts in the internal bottom in the next couple of days, then we should see a bounce and retest towards the end of this month. That's just a guess at this point. Until the daily trend turns up, think shorting the bounces, not picking some elusive bottoms. Supports mean squat in strongly downtrending markets ! It's "Slipping down the slope of hope". It's gonna be one hectic week. Will post an update, end of this week.

Good luck !